I started going through TurboTax Business. It loaded up my 2008 return and filled in all of the basics, which was nice.
As I fill out the required new information I wonder how this will work out…
In May of 2009, I received a letter from the IRS stating that I owed an additional ~$1257.88 in payroll tax (eg. social security/medicare tax). The wage I paid to myself was $8199 ($16398 total charged to the company I was contracted with) , and the estimated payroll tax I paid was $2721.67 (eg 33%). It’s been a while since I’ve researched this crazy thing called taxes… but since when do businesses pay in 48.54% on payroll? On the sheet it didn’t explain why they “recalculated” my submitted 941 for that final quarter, but I ended up paying it anyway to avoid the hassle.
Also another thing to keep in mind is that I pay personal estimated federal income tax on the distribution half of my profit from the contract work. That totaled out to be $1467.23.
If I add up all of the taxes (federal, state, unemployment insurance) on that money it comes to a total of around $5950. 5950/16398*100=36.28%, that’s fine and dandy if I were an LLC, but my company was being taxed as an s-corporation with half as payroll only.
So based on those numbers, I have a feeling, they knew my total charges to the company I was contracted with and assumes they are entitled to the full amount as payroll, but half is distribution… I think once my taxes are filed, I get this mystery tax sorted out. I think half of the profit as payroll and half as distribution is reasonable.
All that being said, I’ve learned quite a bit over the time I started my LLC taxed as an s-corporation, worked, and eventually disbanded the company. In the future I want to have a successful business (not service based), so any endeavor that can add to my knowledge of business is a good thing.
At this point, there are still tax forms that are not final, so it looks like it will be late January until I can submit the business side of my taxes (both state and federal).